Confidence high as firms plan expansion

Inflation may be at a 30-year high but optimism is back on the up for UK financial services firms, as 90 per cent say they plan to retain or grow their operations in London’s financial district (known as the ‘City’).

That figure is up from 75 per cent in spring 2021 and 50 per cent in 2020, according to an EY survey of decision-makers from 40 large global financial services firms that tracks the attractiveness of the UK each year.

Positive sentiment had sunk to 11 per cent in spring 2019, ahead of the Covid-19 pandemic. Overall, 41 per cent of firms said they planned to increase UK investments, with 8 per cent planning a “substantial” increase — higher than the 6 per cent recorded in a 2021 survey.

The latest polling also showed that 87 per cent of firms believe the UK offers the right environmental, social and governance (ESG) investment and 59 per cent indicated ESG is among their top three priorities. Just 3 per cent said ESG was not an area of focus.

Confidence in London as the chief location for new financial services investment remains — 54 per cent agreed that the capital is the most attractive region in which to establish or expand financial services operations, up from 31 per cent, though 54 per cent noted the need to further prioritise geographic rebalancing of the UK economy.

Key risks identified for investors included future pandemics and environmental or cyber crises, as well as the liquidity of capital markets and the availability of capital.

EY’s UK financial services managing partner Anna Anthony said the feedback was encouraging. “This is testament to the stability and resilience of the mature UK market, which continues to ably withstand the material challenges and uncertainty of both the pandemic and Brexit’’, she said. “It is also positive that the investors see the UK as the right place for growth in ESG, which, post-COP26, is a major and increasing focus for boards.”

She added: “The UK clearly has many unique selling points attractive to investors in both boom times and crisis. The key now is to ensure that rhetoric is turned into action.”

It is therefore, not a major surprise that UK Fintech investment topped $39.3 billion (£27.5 billion ) in 2021, a seven-fold increase compared to 2020, as deal-making activity soared. Britain has emerged as a hub for fintech investment post-Brexit, with over 600 M&A, private equity and venture capital deals finalised in 2021, up by 27 per cent compared to 2020.

The investment total was boosted by a string of high value deals with five of the ten largest fintech deals in the EMEA region completed in the UK, according to KPMG data. A spokesperson for the Treasury said: “The UK is a world-leader in fintech, which is good for jobs and the economy. We welcome these figures from KPMG, that show how our work to create an environment that supports innovation and attracts investment is paying off.”

Britain was a clear front runner in Europe, with the EMEA region attracting a total of $77 billion in investment in 2021.

Head of financial services for the UK and EMEA at KPMG, Karim Haji, said: “The UK remains at the centre of European fintech investment with British fintechs attracting more funding than their counterparts in the rest of the EMEA combined.”

Globally fintech funding reached $210 billion across a record 5,684 deals last year, with fintech firms focused on payments attracting $51.7 bn. KPMG said surging interest in “buy now pay later”, embedded and open banking is a sign of a “robust” sector.

The UK’s financial watchdog is mulling tough new regulation for “buy now pay later” payment services, which were used by one fifth of British adults last year amid booming popularity.